What You Need to Know about Creating a Last Will and Testament

Preston Butler was an 18-year-old college freshman when his father Bruce unexpectedly passed away.

As the oldest of three children, Butler was left the difficult task of helping organize his father’s estate while mourning his family’s tragedy. At the time, neither Butler nor his siblings had any idea just how difficult managing his father’s assets would be.

“It was a daunting experience,” Butler says. “He had his own business and several accounts, and I didn’t know where to start.”

Butler’s experience is not uncommon. Each year, thousands of North Texans contend with the financial burden left by loved ones who either died without a will or died with an invalid “do-it-yourself” will.

Having a will “is about preserving family relationships,” says McKinney attorney April Nordhaus.

The emotional burden of losing a spouse, child or parent is immense – and the issues are further complicated when families do not have properly prepared wills. Unbeknownst to many, families often face a large number of financial and legal issues following a loved one’s death.

Funds may be tied up in probate court, relatives may fight, and families may need to contend with estate taxes if finances are not appropriately assigned.

“A will is important to state and make clear what your wishes are and to avoid a more complicated legal process,” Nordhaus says.

Ensure Your Loved Ones Receive Assets

In Texas, everyone who owns real estate must go through probate, including those who jointly hold title to property. Having a will is the first step to making this necessary process a little less difficult. Further, there are other simple techniques that can be established to allow your family to completely avoid probate. This, however, requires proper planning with a qualified attorney.

Nordhaus encourages families to create a suitable estate plan, which may include simple wills for some or more complex planning options for others. The key is to prepare early and accurately so that tragedy is not compounded by the confusion caused by an estate lacking a will.

Although wills are recommended for everyone, they are especially important for blended families who have children outside of the current marriage.

Even when a couple has been married for years, if the first spouse to die has children from a prior relationship, the surviving spouse is typically shocked to learn that he or she will not inherit their home, not to mention all other accounts and assets that will also pass to those children from outside the marriage.

“A surviving spouse is entitled to certain homestead rights and can remain in the home, but those step-children become the actual owners,” explains Nordhaus. However, this can all be avoided by preparing a valid will.

Nordhaus also encourages families to understand the importance of estate tax planning. This is more important than ever because estate tax laws will change significantly in December 2012.

Estate tax is a transfer tax. In the eyes of the Internal Revenue Service, the net worth of a person’s estate includes the death benefit of life insurance policies and all other assets. The IRS taxes the transfer of this total value to the beneficiary. While a certain amount is currently tax-free, the estate tax credit is expected to significantly drop in December.

As an example of this future change, a single parent passing $2 million worth of property to a child (including the pay-out amount of life insurance policies), can expect the actual inheritance to be less than $1.4 million after the 55-percent tax rate.

Proper estate planning can help avoid these drastic tax implications, and preserve wealth for your children and other beneficiaries as a result.

Internet Wills

It is estimated that most people will create a will once in their lives, but laws and family dynamics change, sometimes deeming previous wills void.

This is one reason why Nordhaus says Internet wills can be a bad idea. Some people also have a misconception that if they sign an Internet will, it is a legally binding document – but nothing could be further from the truth.

“The most common reason Internet wills are not approved in court is because they were not executed correctly, and despite the intent, it is not a valid document,” Nordhaus says.

Using a local attorney for estate planning can help families avoid the numerous complications that arise with a do-it-yourself Internet will. Attorneys take the additional, appropriate legal steps to ensure the will is correctly signed and legally drafted for the unique needs of each family.

An additional concern with Internet wills is that they are typically not state specific, despite the user’s selection of “Texas” as their home state.

“A Texas-based will should contain certain words in order to keep probate simple and efficient for your family,” Nordhaus explains.

An estate-planning attorney will ensure the proper coordination of your will and the beneficiary designations of items such as life insurance policies, retirement accounts and annuities. Beneficiary designations for these types of accounts trump what is included in a will, which can lead to large amounts of money being frozen, not accessible or passed to unintended beneficiaries. That’s why Nordhaus encourages consumers to weigh their options.

Who Needs a Will?

Everyone needs a will, but anyone who owns property or has children should be first in line to draw one up. An estimated 60 to 80 percent of Americans do not have wills.

Wills are not an easy topic for many families to discuss, but if family members will make their plans in advance, they will be better positioned to deal with grief rather than burdened with unnecessary court involvement, legal fees and family feuds.

As his father’s passing became imminent, Preston Butler left his college soccer team and classes for nearly three months – initially to help his father during his last days and then to help his family settle his father’s finances.

Although it has been more than a decade since his father’s death, Butler still vividly recalls the financial issues that arose. So, he encourages families to plan in order to prevent similar experiences.

“People need to realize that it might be a hard thing to talk about now, but [worrying about finances] is a lot more difficult on your family later,” Butler says.

About the author: Leigh Hornsby, Ph.D., is a Principal Partner with Public Information Associates, based in McKinney.